Microsoft makes money by charging people and companies to use its software and cloud services, usually through subscriptions they pay for every month or year. The three biggest engines are Microsoft 365 (the Word, Excel, Teams, and Outlook bundle), Azure (a massive network of computers in datacenters that businesses rent instead of buying their own), and Xbox Game Pass (a Netflix-style subscription for video games). Companies pay per seat for Microsoft 365, meaning every worker who needs access counts as a paying customer. Azure charges based on how much computing power customers actually use. These two models together created a machine that generates cash in enormous and predictable quantities. The diagram below traces where the money goes.
Five years of financial data tell a clear story. Revenue climbed from $168.1 billion in 2021 to $281.7 billion in 2025, a gain of $113.6 billion over four years. That is not a company drifting forward. It is a company accelerating. Gross margin, the share of each dollar of revenue left after paying for the product, held remarkably steady across all five years, never straying far from 69 cents on the dollar. That consistency matters because it tells you the growth is not being purchased by giving away margins.
Operating cash flow, the actual cash the business pulls in from running its operations, grew from $76.7 billion in 2021 to $136.2 billion in 2025. That is nearly double in four years. Free cash flow, which is what remains after spending on physical assets like datacenters and equipment, tells a slightly more complicated story. It rose from $56.1 billion in 2021 to $74.1 billion in 2024, then dipped slightly to $71.6 billion in 2025. The gap between operating cash flow and free cash flow is widening, which means Microsoft is spending more and more on physical infrastructure. The company says this is deliberate: it is building datacenters as fast as it can to meet demand for artificial intelligence services.
The Intelligent Cloud segment, which is mostly Azure, grew revenue 21% in fiscal year 2025 alone. Azure itself grew 34%. But the cost of running Azure grew even faster, up 36% in the same year. Microsoft says that squeeze comes from scaling AI infrastructure, and that efficiency gains in Azure are partially offsetting it. The Microsoft Cloud gross margin percentage fell to 69% in 2025, down slightly from prior years, for the same reason. This is the central tension in the financial picture right now: the biggest growth engine is also the biggest cost driver.
Microsoft has named several specific risks in its filings that are worth understanding directly, not as boilerplate warnings but as real constraints on the business. The first is a GPU shortage. Microsoft says it faces severe shortages of the specialized chips needed to run AI services because competitors use the same limited suppliers. If it cannot get enough chips, it cannot build datacenters fast enough to serve customers, which would slow Azure growth at precisely the moment demand is highest.
The second risk is a tax bill that has not been resolved. The US Internal Revenue Service is demanding an additional $28.9 billion in taxes, plus penalties and interest, from Microsoft for the years 2004 to 2013. The dispute centers on how Microsoft priced transactions between its offices in different countries. Microsoft says it disagrees and will fight the claim. The final number, whatever it turns out to be, could land in a single year and hit finances hard in that period.
A third risk arrived through a security breach in late November 2023. A nation-state actor used a technique called a password spray attack to break into a legacy test account and then accessed Microsoft email accounts, source code, and internal systems. Microsoft has warned that the attacker may continue to use the information obtained to attempt further access. For a company whose entire pitch to enterprise customers is that it can be trusted with their most sensitive data and workloads, a breach of this kind is more than a one-time incident. It is a reputational variable that follows the company.
The OpenAI partnership is also a financial exposure. Microsoft recorded net recognized losses on equity method investments, including OpenAI, as a significant item in the fiscal year 2025 other income and expense line. The company spent heavily on OpenAI and that investment is being marked down in the current period, contributing to a total other expense of $4.9 billion in fiscal year 2025, compared to $1.6 billion the year before. The partnership is simultaneously the company's biggest growth catalyst and a source of real financial drag.
This distinction matters because Azure's 34% growth in fiscal year 2025 was driven by consumption. Customers are not just signing contracts. They are actively running more workloads. Microsoft 365 Commercial cloud grew 15%, driven partly by seat growth of 6% and partly by higher revenue per user. The per-user revenue growth is significant because it means Microsoft is charging more for the same seats, largely by adding AI features like Microsoft 365 Copilot into the subscription bundle and pricing them at a premium.
Microsoft held $94.6 billion in cash, cash equivalents, and short-term investments as of June 30, 2025. It paid $24.7 billion in dividends in fiscal year 2025 and spent $13.0 billion repurchasing its own shares. It has committed to $397 billion in total future contractual obligations, including construction commitments for new datacenters, long-term leases, and purchase commitments primarily tied to AI infrastructure. The company is spending at a scale that only makes sense if cloud and AI demand continues to grow for many years.